In one Google search, you can find plenty of ‘bookkeeping solutions’ offering their services for $250 a month (or less). 

These low-level bookkeeping services are designed for solo-preneurs doing $300,000 a year with one or two employees. If you’re a service-based business bringing in a million or more in revenue, this kind of ‘solution’ is not for you, my friend. 

When you’re a business owner trying to keep costs down, I understand the compulsion to go cheap and save money. But I also know that the cheapest option is rarely the best approach. We all know it, because it isn’t only the case with bookkeeping and accounting. I’m sure all of us can think of a time we chose to save precious cents, only to end up spending double the money, time or effort in the long run. 

What you may not understand is why cheapest isn’t best in this case – and what exactly it’s costing (or will cost) your business if you do go with a low priced option. 

A $250-a-month service won’t give you the insight you need to make strategic decisions about your business

The reason these services are so cheap, is because they only provide cash basis accounting.

We recently wrote a blog on the difference between Cash and Accrual basis accounting. Here’s the key takeaway: 

Accrual basis accounting is the only way to report how well your business is performing operationally.

Cash basis accounting only reports on the cash exchanging hands. This means that all these $250 bookkeeping services are doing is grabbing transactions from bank accounts and credit cards and loading them into your Quickbooks file. 

This kind of limited information isn’t enough for a business at your level. It might give you what you need to do a tax return, and it might provide you with a set of financial statements – but it doesn’t give you any insight on what’s truly impacting your business on a monthly basis. $250 a month won’t tell you what decisions you need to make to change your cash flow situation or become more profitable.

Alternatively, accrual basis accounting records and reports your revenue, costs, expenses and purchases based on when the transaction actually takes place in time, allowing you to see the whole impact of a business transaction, regardless of when cash changes hands. 

What do you really want (and need) to know about your business?

When all you have is a cash basis picture of what has come in and out of your business, you have no perspective on what is truly impacting your finances. 

We’ve seen this case first hand many times. We’ve worked with business owners who had no idea that 60% of their accounts receivable were sixty days past due, or more. The owner is left wondering why cash is so tight, unaware that barely any customers are paying on time. This can cause a snowball effect when the business is late making their own payments, often compromising the relationship with key vendors. 

 

  • You need to know your accounts receivables – Cash basis accounting isn’t going to give you any insight into which customers are paying on time, what invoices are past due or how fast your invoicing is turning over. If you don’t know these things, you’ll keep serving customers that aren’t paying you on time, or worse, aren’t paying you at all. 

 

  • You want insight into your debts – You want to know who you owe, how much you owe and when you owe it. What you don’t want is to be surprised by a big unexpected vendor bill, right at a time when you have a lot of expenses to pay.

 

  • You don’t want to be making tomorrow’s decisions based only on today – Living in the moment is more like living in the dark when it comes to business finances. When your business is performing on a day to day basis, you’re only working with the information from the jobs you’ve done today, the invoices you’ve received today, and the costs you’ve incurred today. You may get excited that you’ve just been paid, and then have a huge vendor bill to pay tomorrow, rendering your cash flow no better than it was. This is why expenses need to be accounted for when they’re incurred, not when they’re paid. 

 

There are a number of questions you may not even know you want (and need) to be asking to get a clear picture of how your business works:

  • Do you need to be doing job costing so you know the true cost of each product or service?
  • Why does one product or service make you a profit, and the other make barely any, despite all the work you put into it?
  • How do you measure employee productivity? What difference does it make to your bottom line?
  • What about the profitability of one customer base Vs another?

Any business with more complexity than that of a solopreneur won’t get the answers to these kinds of questions from lowball cash basis accounting. You need more than just bookkeeping – you need controllership and CFO advice. 

The questions you need to ask when you’re outsourcing your bookkeeping

Now that you know what you’re not getting from the low cost bookkeepers, it’s important for you to know exactly what you should expect when you look at outsourcing your bookkeeping.

Here are the questions to ask your bookkeeper:

  • Are you going to be providing me financial statements on an accrual basis?
  • How will you handle invoicing and/or managing accounts receivable?
  • How will you handle recording and paying vendor bills?
  • Will you keep me informed on a week to week basis where we stand from a cash flow standpoint?
  • Will you talk to me about the financials and help me understand gross profit, net income, cash flow- and how it’s affecting my business?

To know where you stand you’ll need to know:

  • How much cash is in the bank?
  • Who do we owe and when do we owe it?
  • Who is late in paying us?
  • What cash needs to go out this week?
  • What do I have coming up in the next 10 days that will impact cashflow?  (i.e. I have a payroll on Thursday, but I need to make two bank roll payments next week, will I be able to cover that?)

We have a high regard and respect for anyone willing to lead their own business.  We all know the business failure statistics, and we know how tough running a business can be sometimes- which is why we want you to have the right tools at your disposal to be one of the businesses that not only survives, but thrives.  That’s why it drives us crazy when we hear stories of business owners being taken for a ride by $150 services!

If you want more insight into your current operations, tell us about your business and we’ll tell you how we can help.